Re: New CBO chief Elmendorf gets it wrong

In case you thought the new head of the CBO understands the way the monetary system works…

>
> On Sat, Mar 21, 2009 at 1:37 AM, Scott wrote:
>
> FYI . . . from page 43 of CBO’s 10-year projections published
> today…influence of CBO’s new head Doug Elmendorf (co-author a few
> years ago of a widely cited paper on the effects of deficits on interest
> rates) is pretty clear . . . .
>
> ”Capital accumulation is affected because the increase in government
> debt is expected to displace, or ÃƒÂ¢Ã¢â€šÂ¬Ã…â€œcrowd out,ÃƒÂ¢Ã¢â€šÂ¬Ã‚Â a smaller amount of private
> capital.
>

There is no such thing.

>
> That result occurs because the reduction in overall national saving
> dampens spending on business fixed investment and the construction of
> housing.
>

Non-sensical rhetoric. ‘National savings’ as he is using the term is a relic from the gold standard when there were hard supply side constraints on reserves.

>
> Although the size of such displacement is very uncertain,
>

Yes, in fact it doesn’t exist.

>
> CBO assumes that, in the long run, each dollar of additional federal debt
> crowds out about a third of a dollarÃƒÂ¢Ã¢â€šÂ¬Ã¢â€žÂ¢s worth of private domestic capital
> (with the remainder of the rise in debt offset by increases in private
> saving and inflows of foreign capital).”
>